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QIS Update #11 2012 - April 2nd 2012



Included in this update:

  • Audiotech Healthcare reports another profitable quarter with the filing of its Q1 financial statements
  • Blackbird Energy completes financing, raises $2.1 million
  • Cobra Venture announces assumption of an offer to purchase certain lands and files fiscal 2011 annual financial statements

The Vancouver Small-Cap Conference is just 8 days away! We have posted the complete speaking schedule and the full list of participating companies for this event to be held on April 10. The schedule can be viewed online at www.smallcapconference.ca/vancouver0412.php. We encourage you to come out and attend the event to pick up some first-hand information from the presenting companies and our knowledgeable guest speakers. It is free to attend and you can register online at www.smallcapconference.ca/register.php. The Calgary conference will be held on May 10 and you can now pre-register for this event as well.
Please feel free to email us anytime at info@qiscapital.com or call us at (250) 377-1182. We look forward to your comments, questions, and feedback.


Audiotech Healthcare Corporation (AUD:TSX-V)
Website: www.audiotech.org
Current Price: $0.23 (coverage commenced Nov. 8/04 - $0.14)
Audiotech is pleased to report another profitable three month period for the first quarter of fiscal 2012 ended December 31, 2011.
Revenues from the Canadian operations for the first quarter of fiscal 2012 totaled $990,561, roughly on par with the $997,202 reported during the corresponding quarter in fiscal 2011. Sales from the U.S. clinics increased to $369,523 from $315,549 during the first 3 months of fiscal 2011. Total revenues for the first quarter ended December 31, 2011, were $1,360,084, the third strongest quarterly sales in the company’s history and its best first quarter ever.
Gross margins remained strong at 69.6% compared to 70.9% during the first quarter of fiscal 2011, 70.1% in fiscal 2011, and the long-term average of 68.9%. Gross margins were on par with internal projections. The change in gross margins experienced during the quarter was within the expected range that would be anticipated with typical day-to-day minor variations in the mix of product sold as well as due to the maturing of some of the clinics opened in fiscal 2007 and 2008. Such day-to-day variations can occur as a result of special promotions of higher or lower margin products, a variation in the ratio of private hearing aid sales vs. those subsidized by various healthcare programs. Additionally, newer clinic operations often exhibit lower gross margins than well established clinics due to their lower product volumes, as well as incentive programs and sales discounts offered to establish a position in a new marketplace. Over the past 5 years, the company has generally achieved steadily increasing gross margins as a result of the negotiation of bulk purchasing agreements with major hearing aid manufacturers. Management expects gross margins to range from roughly 69% to 71% during the remainder of fiscal 2012.
Direct clinic costs, which include selling and advertising costs, rent and clinic overheads, clinic labour costs, and amortization of audiology equipment, increased by 10.3% during the first quarter of fiscal 2012 as compared to the same quarter a year ago. Direct clinic costs as a percentage of sales increased to 50.6% of sales, up from 47.5% in the corresponding quarter a year ago. On November 1, 2011, the company’s Canadian operating subsidiary entered into a 6 month sub-lease to rent its unoccupied former southwest Calgary clinic space to a third party for $2,700 per month. The tenant has a 6 month renewal option and also has an option to purchase the space from a company controlled by a director of Audiotech. This transaction will reduce effective rent costs going forward. The increase in direct costs is attributed to general annual increases in negotiated salaries and an increase in staffing levels to support growth, and an increase in amortization costs related to the sales / leaseback transaction (capital lease) in fiscal 2011.
General and administrative expenses (including financing costs) totaled $139,982 for the quarter, a decline of 3.2% from the $144,597 reported during the same period last year despite an unfavorable foreign exchange cost of over $7,000, and an increase in professional fees related to IFRS implementation. Significant cost reductions were achieved in administrative salaries and benefits, and financing costs (interest). All costs were on budget with management’s expectations and were similar to the average level of expenses from fiscal 2011. General and administrative costs declined as a percentage of sales from 11.0% to 10.2%.
Pre-tax net income was $116,823 for the first quarter, down from $161,975 in the same quarter a year ago.
After income taxes, net income for the quarter totaled $79,455 or $0.006 per share, down from $114,188 or $0.008 per share for the first quarter of fiscal 2011. Operating cash flow was $122,850 as compared to $156,518 during the first quarter ended December 31, 2010.
As at December 31, 2011, Audiotech had a cash balance of $1,138,658. Working capital totaled $962,155. Management is confident that the company has sufficient working capital to meet its short and long-term needs, and growth requirements for the foreseeable future.
A total reduction in long-term debt and long-term capital leases of $133,861 was achieved during the first quarter of fiscal 2012, including the early repayment of a $100,000 promissory note which would have matured in April 2013, and the repayment of $9,794 in capital lease obligations. In light of the company’s increasing cash balances and operating cash flows, management has been accelerating the repayment of its long-term debt. Management plans to continue its program of accelerated debt repayment.
BALANCE SHEET
(As at Dec. 31, 2011)
Current Assets $ 1,740,865
Total Assets 2,550,845
Current Liabilities 778,710
Long-Term Debt 1,034,168
Shareholders' Equity 727,692

FIRST QUARTER FINANCIAL RESULTS
  3 months ended December 31
  2011 2010
 
Sales $ 1,360,084 $ 1,312,751
Materials & Freight 413,848 381,548
Gross Margin 946,236 931,203
Direct Clinic Costs 688,340 623,996
General & Admin. 24,220 22,592
Financing Costs 19,034 25,485
Salaries & Benefits 69,330 77,693
Net Income 79,455 114,188
per share 0.006 0.009
QIS Capital Comments:
Another solidly profitable quarter for Audiotech. While earnings were down in the first quarter compared to last year, the company has mitigated some extra costs by leasing its vacant space in Calgary. Audiotech will further save on interest costs going forward as a result of continued debt reduction during the first quarter. As at December 31, 2011, Audiotech had a cash balance of $1,138,658 and positive working capital of $962,155. Management has reduced the company’s total debt by over 50% (excluding capital leases) since the end of the first quarter last year. Audiotech is presently trading at 6.6 times 12-month trailing earnings.


Blackbird Energy Inc. (BBI:TSX-V) 
Website: www.blackbirdenergyinc.com
Current Price: $0.17 (coverage commenced Aug 19/11 - $0.18)
Blackbird Energy (BBI:TSX-V) was recently highlighted in an article written by Resource Clips. You can view the entire article by visiting: http://resourceclips.com/2012/03/30/bigstone-big-comeback/
Blackbird Energy Inc. has announced that it has closed its previously announced brokered and non-brokered private placements for gross proceeds of $2,079,960.
In the brokered private placement, led by lead agent PI Financial Corp., the company raised gross proceeds of $1,489,000 through the issuance of a total of 8,637,500 flow-through units at a price of $0.16 per flow-through unit and 668,750 units, at a price of $0.16 per unit. Each unit consists of one common share in the capital of the company and one common share purchase warrant exercisable at a price of $0.24 until March 15, 2014. Each flow-through unit consists of one common share issued on a flow-through basis and one half of one warrant, with each whole warrant exercisable at a price of $0.24 until March 15, 2014.
Pursuant to an agency agreement entered into between the company and the agent, an aggregate of 744,500 agent's warrants were issued to the agent and its selling group, representing 8% of the units and flow-through units sold in the brokered private placement. Each agent's warrant is exercisable at a price of $0.24 until March 15, 2014. In addition, the agent has also been paid a cash commission of $119,120, representing 8% of the gross proceeds of the brokered private placement, and has been granted a right of first refusal to act as financial advisor, agent or underwriter, as applicable, in respect of any corporate transaction, brokered offering to the public or brokered private placement being undertaken by Blackbird within 18 months from the closing of the brokered private placement.
In the non-brokered private placement, the company raised gross proceeds of $590,960 through the issuance of a total of 950,000 flow-through units and 2,743,500 units. Additionally, an aggregate of 222,080 finder's warrants were issued and finder's fees paid to certain finders in connection with the non-brokered private placement. Each finder's warrant is exercisable at a price of $0.24 until March 15, 2014.
All of the securities issued pursuant to the brokered private placement and the non-brokered private placement, including all agent's warrants and finder's warrants, are subject to a four month hold period expiring on July 16, 2012.
The net proceeds from the brokered private placement and the non-brokered private placement will be applied to the company's project with Donnybrook Energy Inc. for the lease construction and drilling of the next Montney well at Bigstone, which is currently underway. The proceeds from the flow-through shares will be used by Blackbird to incur eligible Canadian exploration expenses. The well is estimated to spud prior to year end.
This news release does not constitute an offer to sell or a solicitation of an offer to buy any of the securities in the United States. The securities have not been and will not be registered under the United States Securities Act of 1933, as amended or any state securities laws and may not be offered or sold within the United States or to U.S. Persons unless registered under the U.S. Securities Act and applicable state securities laws or an exemption from such registration is available.
QIS Capital Comments:
Blackbird should now have sufficient capital to fund not only the drilling of the third high-impact well but the construction of pipeline and gathering facilities and the tie-in of production. The drilling of the third well is moving ahead according to schedule and should be to total depth in the next week or so. Production pipelines have also been moving ahead with production expected in mid-April. Blackbird is expected to provide an update on operations in the near future.


Cobra Venture Corporation (CBV:TSX-V)
Website: www.cobraventure.com
Current Price: $0.24 (coverage commenced May 22/07 - $0.205)
Cobra Venture Corporation has announced that it has entered into an assignment and assumption agreement (the "Assignment Agreement") with a corporation controlled by an insider of the Corporation (the "Assignor"), whereby the Assignor has agreed to assign to the Corporation all of its rights and interest in an offer to purchase and interim agreement (the "Offer to Purchase") between the Assignor, as purchaser, and a third party who is arm's length party to the Corporation (the "Vendor"), as vendor. The Offer to Purchase is in respect of the acquisition of certain lands and premises located in the Municipal District of Rocky View No. 44, in the Province of Alberta, consisting or approximately 15.78 acres, excepting thereout all mines and minerals (the "Lands") for an aggregate purchase price of $3,975,000 (the "Purchase Price"). The Corporation believes that the Lands have a strategic value that will integrate into the Corporation's future business plans.
Pursuant to the Agreement, the Assignor has agreed to assign to the Corporation all of its rights and interests in and to the Offer to Purchase, including the right to purchase the Lands thereunder, in exchange for the Corporation paying to the Assignor $100,000, which amount is equal to the first non-refundable deposit already paid by the Assignor to the Vendor under the Offer to Purchase and which amount shall be applied against the Purchase Price upon closing of the acquisition of the Lands ("Closing"), and the assumption by the Corporation of all obligations and liabilities of the Assignor under the Offer to Purchase, including the obligation to pay the outstanding balance of the Purchase Price.
Pursuant to the terms of the Offer to Purchase, the Corporation is required to pay a further deposit of $275,000 to the Vendor by March 31, 2012, which deposit shall be non-refundable and shall be applied to the Purchase Price upon Closing. Closing is currently anticipated to occur on or about June 30, 2012 at which time the remaining $3,600,000 of the Purchase Price shall be paid to the Vendor. Closing is subject to receipt of all necessary regulatory approvals, including the approval of the TSX Venture Exchange
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Cobra Venture Corporation has just released its Audited Annual Financial Statements for the year ended November 30, 2011. Complete versions of these documents may be obtained electronically from the SEDAR system at www.sedar.com.
The following is a summary of the significant events and transactions that occurred during the year ended November 30, 2011:
  • Repurchased 70,000 common shares of the Company for cancellation for $17,884.
  • Renounced $300,000 in exploration expenditures to flow-through share investors and recorded the tax effect as a $75,000 reduction in share capital and increase in future tax liability.
  • The company entered into a lease agreement with an independent large oil production company, on 160 acres of the company’s lands in the Viewfield area, southeast Saskatchewan. The land is a 100% owned fee simple mineral title by the company. The lease has a term of two years with a net gross overriding production royalty of 20% to the company. The company also received a bonus sum of $200,000.
  • The basal belly river oil well that Cobra participated in the drilling of at Davey Lake was put on steady production in July 2011. To date it has performed exceptionally well with water cuts and gas rates to be within the targeted levels and with an average of 40 barrels of oil per day the well is expected to payout within one year. Cobra will monitor this well and the area and shall continue to seek oil opportunities at Davey Lake where payouts of approximately one year are the goal. Cobra is optimistic that more drilling or acquisition opportunities will develop in this area in the coming year.
Oil and gas revenue for the year ended November 30, 2011 was $1,520,194 compared to $1,974,373 in 2010. The decrease is a result of decreased royalties and production revenue due to a combination of factors including wellbore clean out and secondary stimulations; infill drilling between existing wellbores; and water flooding in Viewfield and Pembina properties.
Direct costs of production for the year November 30, 2011 were $320,465 compared to $305,676 in 2010. The increase is primarily a result of increased operation costs.
Administrative expenses for the year November 30, 2011 were $960,383 compared to $911,499 in 2010. The increase is mainly a result of increased management and professional fees.
During the year ended November 30, 2011, the company recorded an unrealized loss of $1,341,250 (2010 – gain of $1,997,500) to adjust its 3,625,000 common shares held in Zodiac Exploration Corp. (ZEX:TSX-V) to market value, net of tax recovery $167,657 (2010 – net of tax $249,688) as other comprehensive income.
Cobra’s reserves are estimated and assessed by a qualified, independent petroleum engineer. No general and administrative costs were capitalized during the year ended November 30, 2011 (2010 - $Nil). The company reviewed its capitalized assets at November 30, 2011 and determined that a write-down of $491,033 of capitalized costs was required
As at November 30, 2011, the company had a positive working capital position of $2,769,593 or $0.16 per share and no long-term debt.
Subsequent to November 30, 2011, Cobra sold all of its freehold petroleum and natural gas royalty interests in the Province of Saskatchewan for a gross amount of $5,250,000 less $68,436 due to industry adjustments for the period between the effective date and the date of closing for net proceeds of $5,181,564. The consideration received by the company consisted of $4,651,564 in cash and 1,767,000 common shares of the company which were owned by the buyer at $0.30 per share (returned to treasury).

LATEST FINANCIAL RESULTS
  3mos Ended Nov 30 Year Ended Nov 30
  2011 2010 2011 2010
Revenues $370,315 $393,935 $1,520,194 $1,974,373
Direct Costs 150,372 200,029 320,465 305,676
Write-down of O&G Interests 491,033 - 491,033 -
Income Tax Expense (Recovery) (176,558) 25,483 21,490 278,031
Net Income (Loss) (564,762) (153,703) (53,108) 488,498
per share ($0.032) ($0.011) ($0.003) $0.031

BALANCE SHEET
(As at November 30, 2011)
Current Assets $ 3,080,421
Total Assets 4,425,263
Current Liabilities 310,828
Long-Term Debt nil
Shareholders' Equity 3,915,241
QIS Capital Comments:
We have received a number of calls and emails regarding the recent purchase of the strategic land position. Unfortunately, Cobra did not feel that it could provide further details on the acquisition due to competitive reasons. None of the purchase price of lands was paid to a related party which has been a source of several of the concerns raised. The strategic land package is being held for value appreciation and/or development and management felt that the eventual return on this property would far exceed the return available by holding the existing cash position. Management has reiterated in our recent conversations that the executive team at Cobra has aligned its interests with that of investors and expects this transaction to further enhance shareholder value within the corporation.
The write-down of property assets of $491K was a result of the decrease in the value of natural gas properties. Following the purchase of this strategic land holding, the company should maintain a healthy cash balance and continues to look for new investment opportunities to accelerate shareholder growth.
Please call or email us if you have any further questions or concerns regarding the latest transactions.

 

Disclaimer: This article is for informational purposes only. The information contained within this article should not be construed as offering investment advice. Those seeking direct investment advice should consult a qualified, registered, investment professional. BOEs may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 Mcf: 1bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. The company profiled assumes no liability for the information presented. This is not a direct or implied solicitation to buy or sell securities. Readers are advised to conduct their own due diligence prior to considering buying or selling any stock. The author(s) owns directly or indirectly 719,500 shares of Audiotech Healthcare Corporation, 99,500 shares and 450,000 options of Blackbird Energy Inc., and 403,000 shares of Cobra Venture Corporation. QIS Capital may have a financial relationship with these companies and may trade in the stocks mentioned. No stock exchange has approved or disapproved of the information contained herein. Copyright © 2003 - 2012 QIS Capital Corporation.

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